Don’t worry (too much) about an October market crash

According to data from Ryan Detrick, chief market strategist at LPL Financial, October is just about in the middle of the pack: It has been the 7th best month for the S&P 500 since 1950 and the 4th best over the past 10 and 20 years.

“October is known for some spectacular crashes and many expect bad things to happen again this year,” Detrick said in a report last week. “But the truth is this month is simply misunderstood, as historically it is about an average month.”

And it could be better than average this October, because there are no potentially game-changing election results coming in November.

Since 1999, the S&P 500 has gained 3.6% in odd-year Octobers and fallen 1.1% in even-numbered ones, corresponding to the US election schedule.

“It turns out stocks don’t like politics much,” Detrick said.

Many risks remain but outlook still promising for stocks

Of course DC headlines could still roil the market this year, albeit not because of an election.

The debt ceiling debate has yet to be resolved, and Congress still hasn’t passed President Joe Biden’s infrastructure and social spending plans. Meanwhile Biden also must soon decide whether he wants to nominate Jerome Powell for a second term as Fed chairman or pick someone else.

“The fourth quarter — like the conclusion of sporting events or Broadway plays — is where the drama lies,” Louis Navellier, chairman of Navellier & Associates, said in a report last week.

That said, Navellier is hopeful the usual seasonal tailwinds for the markets and the broader economy will lift stocks this year.

A key measure of inflation surged to a new 30-year high

Stocks tend to enjoy not just solid gains in October, but also for the remainder of the fourth quarter. Consumer spending surges during the holiday shopping season and businesses often look to boost investments before annual budgets run out.

With that in mind, some strategists think that investors will continue to focus on the positive when looking ahead to earnings for Q4 and 2022.

Yes, worries remain about Covid-19, Fed policy, inflation, global shipping delays and numerous other economic warning signs.

But although this could create more volatility than usual in October and the rest of the fourth quarter, few expect that these challenges will lead to another recession. So the path of least resistance for stocks is still upward.

“Virtually all of these problems are showing tangible signs toward resolution,” Robert Teeter, managing director at Silvercrest Asset Management, said in a report Monday, “and should not inflict any long-term damage to stock valuations.”

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